Will the price of gas and oil continue to rise?

Chris Huhne says the case for renewables is supported by projections that the wholesale cost of energy – generally benchmarked to the price of natural gas – will continue to rise

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Danny Lawson/PA Wire

A North Sea oil rig

Chris Huhne says the case for renewables is supported by projections that the wholesale cost of energy – generally benchmarked to the price of natural gas – will continue to rise.

While it’s true that energy bills will continue to rise, much of this will be down to additional costs – known as third party charges.

These include: network costs and transmission costs; supplier costs and green levies which are all set to markedly increase by the end of the decade and beyond.

In fact, wholesale energy costs are expected to stay flat until 2020, a recent report from ‘big six’ energy company RWE npower estimates.

Policy and green costs are expected to rise by 339% over the same period, with the proportion of wholesale energy cost in a domestic dual fuel bill falling from 45% to 35%.

Leading market energy analysts Platts say current market spot prices of around 45-50 pence a therm (p/th) are at the lowest levels since late 2010 and compare with prices in the mid-1960s.

Speaking to Journal Energy on Friday of last week, Platts’ gas analyst Alex Froley said April’s day-ahead monthly average of 49.87p/th was the first monthly average below 50p/th since November 2010.

Many argue that the development of shale industries in countries such as Poland, Argentina and China will bring more of the abundant global reserves of natural gas to market pegging and possibly lowering prices.

In a letter to the Financial Times in February 2013, Oxford energy Professor Jonathan Stern said conditions for this decade were hard to predict.

It said: “With European gas demand in free fall for the past four years (2012 demand fell to the levels of the late 1990s), many new liquefied natural gas projects expected to come on stream towards the end of this decade, and the possibility that Japan will start to reopen some of its nuclear capacity, the balance of European gas supply and demand in the mid to late 2010s is far from clear.

“Ever-rising gas prices are far less likely than a continuation of the commodity cycle of higher and lower prices seen in the UK over the past two decades, and not dependent on whether gas is supplied from domestic sources or imports.”